The recent news that F&C is going to levy an annual charge of £25+VAT on all its Child Trust Fund (CTF) accounts is, without a doubt, disappointing. But, after much deliberation, I’ve decided to keep my accounts with F&C. Here’s why...
I think it’s only a matter of time before other CTF providers impose a similar charge
Firstly, I moved the accounts to F&C because I wanted active management, not an index tracker fund with a charge of 1.5%. When the Labour government introduced CTFs, they stated the maximum charge that could be levied was 1.5%. No surprise, then, that most funds charged 1.5%--simply because they could. But the Silver-rated Foreign & Colonial Investment Trust (FRCL) has Ongoing Charges of less than 0.6%. That’s a distinct advantage for its shareholders.
Secondly, having picked the right fund at the right cost, I wanted to bolster my children’s investments in their CTF accounts, given the long time horizon. In my house, these funds have at least 10 years to run before the children take control of the investments. So having chosen an actively managed fund at a reasonable cost, specifically with a view to topping up the accounts, moving them away now would be counter-productive.
Thirdly, I think it’s only a matter of time before other CTF providers impose a similar charge.
Getting My Priorities Straight
So for me, my priority is that I have chosen the right long-term investment. Granted, the administration fee is a frustration, but the low Ongoing Charges at Foreign & Colonial Investment Trust help to mitigate this somewhat. Further, F&C is offering the ability to pay the £25 admin fee from an external account, rather than deduct it from the CTF. The bank of mum and dad will no doubt come in handy here as I’d rather let the children’s investments grow as much as possible, without eroding them through charges.
The F&C investment trust has made nearly 11% on an annualised basis over the last 10 years, to January 31, 2013. That’s a full two percentage points more than the MSCI World Index and places the fund in the 8th percentile for its Morningstar Global Large-Cap Blend Equity category. That’s the kind of return profile I’m hoping will continue over the long term.
The Benefits of F&C
There are several benefits to having my CTFs with F&C. To start, the children can make one-off top-up contributions of just £100—although that’s likely to take serious negotiation as any birthday or Christmas money is currently put towards Lego—and as parents we can add just £25 on a monthly savings plan. That allows the benefit of pound-cost averaging and is a particular attraction of investment trusts; most open-end funds have a much higher minimum investment.
As mentioned above, the F&C investment trust has lower Ongoing Charges than tracker funds available through other CTF providers. Plus, it offers active management so I’m hoping we pay less for better performance.
Finally, the ultimate benefit of CFTs is that my children will learn about the merits of long-term investing. Over time, they'll start spending less money on Lego and put more into their investment trust investments.
